The performance of the stock market is expected to hinge on the upcoming federal budget 2025, with the next Monetary Policy Meeting (MPC) meeting also in focus, according to a note by AKD Research.
The market remained volatile throughout the week, with early corrections causing the benchmark index to dip below the psychological barrier of 75,000 points.
However, the index saw a recovery on the last trading day (Friday), gaining 1,000 points. The KSE100 index ended the week down by 105 points, or 0.14% week-on-week, closing at 75,878 points.
Uncertainty surrounding the upcoming budget fueled volatility and profit-taking. With just a week remaining before the budget announcement, concerns have risen over the IMF’s high tax proposals.
Reports suggest abolishing all sales tax exemptions, except for essential food items, and increasing the standard GST from 18% to 19%.
The budget announcement is expected to coincide with the upcoming MPC meeting, potentially causing delays as Prime Minister Shehbaz Sharif will be on an official visit to China.
On the inflation front, May 2024’s CPI inflation is projected at 12.8% year-on-year. As the inflation outlook eases, the cut-off yields in the latest T-bill auction dropped by 60 basis points for 3-month papers. Similarly, secondary market yields for 3-month papers fell by 118 basis points month-on-month to 20.44%.
The declining yields suggest a potential coupon rate cut in the upcoming MPC meeting, which brought some positivity to the market. However, with the budget’s impact still uncertain, an imminent interest rate cut in the upcoming MPC seems unlikely.
Overall market participation decreased by 8.5% week-on-week, with the average daily traded volume falling to 511 million shares compared to 558 million shares in the previous week.
On the currency front, the Pakistani Rupee depreciated by 0.04% week-on-week to close at 278.33 against the US Dollar.
Other major news during the week included the FBR’s plan to collect Rs1.296 trillion through duties, the country borrowing $7.142 billion during July-April, and a 39.7% year-on-year decline in credit to the private sector. Sector-wise, investment banks/securities, leather & tanneries, and engineering were among the top performers, up 56.5%, 12.2%, and 5.1% week-on-week, respectively.
Conversely, transport, woollen, and property were among the worst performers with declines of 66.0%, 5.5%, and 4.1% week-on-week, respectively.
Major net selling was recorded by mutual funds with a net sell of $8.9 million, while insurance companies absorbed most of the selling with a net buy of $13.1 million.
As per the brokerage note, market performance is expected to hinge on the upcoming Federal Budget 2025, with the next MPC meeting also in focus. While the possibility of a coupon rate cut is slim, any such move would likely boost positivity, especially in the cyclical sector. Following budget approval, the next IMF program will become a key market trigger in the near term.
